Israel and the current capitalist crisis

November 13, 20085:30 AM CST

The financial crisis does not skip over Israel. The country that has been integrating itself in global capitalist markets in the last few decades is once again seeing the ugliest side of capitalism, as the stock markets have dropped over a stunning 10 percent since the beginning of the month and the GDP growth forecast for the next couple of years has been slashed.

The crisis finds Israeli society in worse shape than it was during the last recession, that of 2000-2003: currently about a quarter of Israeli citizens live below the official poverty line, among whom the percentage of minority groups, such as Israeli Arabs and orthodox Jews, is extremely high. A large part of the Israeli poor population are defined as ‘working poor,’ meaning people who are employed and yet do not earn a minimum living wage, a phenomenon which is usually regarded as a symptom of the crumbling of the middle classes.

Despite the fact that many governments around the world, from Europe to Mexico, are intending to increase spending in order to combat the oncoming recession, the Israeli government has already declared that it will keep a balanced budget and that, to do so, further cuts in social spending will be necessary. The government has not yet revealed its 2009 budget, but as in the 2003 emergency economic plan, it is likely to include reduction of state support for education and welfare, shutting down hospitals, schools, and community centers.

The current crisis also has a direct effect on the pensions and long-term savings of many Israeli workers and retirees. In the last few decades, Israel underwent a series of financial reforms aimed at integrating Israeli society in the international financial system. Thus, the major pension funds, which until 1995 were held by the Israeli labor confederation, were privatized in 2004. The era also saw the acquisition of major financial institutions, such as the country’s biggest insurance company and second-largest bank, by foreign holders. The financial institutions, now fully integrated into international finance, have poured investments into foreign financial markets rather than government bonds, as well as securities that enriched major Israeli tycoons, who are themselves heavily invested in foreign financial equities. The losses that the global financial sector has suffered in the last several weeks have had major impacts on Israeli institutional investors’ earnings, resulting in pension savings shrinking by an average of 8 percent — and the worst is yet to come. Many workers, especially those nearing retirement, simply don’t believe they will be able to maintain a decent standard of living, so they are forced to work in their older age.

Another sector that has been affected by the crisis is the vast network of NGOs providing necessary welfare to thousands of Israelis. With the deepening poverty in Israeli society, the NGOs have come to supply many essential social services, from soup kitchens and charity to health and education. The NGOs, which often operate under the banner of ‘social justice,’ are usually heavily reliant upon contributions from wealthy Israeli and international donors, including some of the major Israeli capitalists. In times of economic turmoil, like now, donations normally become skimpier, leaving a significant part of the Israeli population without basic essentials, sometimes as basic as food and shelter. This aspect of the crisis is especially keenly felt in the Palestinian territories, as many aid programs are being cut back due to lack of funds.

Israeli industry is also likely to suffer cutbacks; already, over 10,000 employees are expected to be fired in the next few weeks. Dependency on foreign markets, which was hailed by liberal politicians as the sign of success of Israeli industry, is likely be its bane in times of global recession. Many venture capitalists, especially in the IT and biotechnology sectors, are already pulling out of Israel.

However, one sector that is not showing signs of recession is the production of means of destruction. Elbit, Israel’s major private arms producer, reported that its gross profit for the second quarter of 2008 increased 55.4 percent compared to the second quarter of 2007, while Magal, which specializes in security and surveillance systems, saw its revenue rising a staggering 78 percent since 2007 (Magal and Elbit are both major contractors in the building of the notorious Separation Wall in the occupied Palestinian territories). Furthermore, Israel’s defense budget is not likely to be cut in 2009 and will probably continue to occupy about 15 percent of the overall state expenditure. Among the billions assigned to the Israeli military, $4 billion will be spent on purchasing 25 new F-35 fighters, which makes it twice as expensive as its catalog price ($87 million apiece), to the happiness of Lockheed-Martin Corporation. The government’s priorities, which are revealed in this overpriced and needless purchase, expose the core of Israel’s geopolitical role: to be the ‘big stick’ of U.S. foreign policy, even with the price of starving its own citizens.